A Brief Introduction to GST

Goods and Services Tax or Indian version of GST is a destination based tax proposed by the government with the aim to eliminate several indirect taxes like VAT, Central Excise Duty, Sales Tax, Service Tax, etc. It is fondly described as one tax for one nation. However, unlike GST of other countries, Indian GST is anything but one tax. It is actually a culmination of three taxes – Central Goods and Service Tax (CGST), Integrated / Interstate Goods and Service Tax (IGST) and State Goods and Service Tax (SGST).

CGST and SGST both will be levied on intra-state supply of goods and services while IGST will be applicable on inter-state supply of goods and services in India. Since it is a destination based tax, it will be levied at all stages right from manufacturer up to the final consumer with credit of taxes paid at previous stages available as set off. In short, tax will be levied only on value addition and the final burden of tax will be borne by the ultimate consumer.

Both CGST and SGST are planned to be levied on same tax base. While CGST is expected to replace all central indirect taxes like Excise Duty and Service Tax etc., SGST is expected to make VAT, Entertainment Tax (other than the one levied by Local Body), Luxury Tax, Purchase Tax, Octroi /Entry Tax, cesses and surcharges, taxes on lottery or betting etc. redundant. However, certain goods like human consumable alcohol, tobacco products, motor fuels, crude petroleum, natural gas, aviation turbine fuel will still be chargeable to Excise Duty.

GST will eliminate cascading effect of taxes. In certain cases like VAT levied by state governments over Excise Tax (which is levied by central government), double taxation becomes obvious. Goods and Services Tax will mitigate this practice of tax on tax.

We hope this gave you some idea about Goods and Services Tax. We will explore more about GST in future posts.

H&R Block India is the subsidiary of the world's leading tax filing company, H&R Block, US. In India we provide online and personalised tax filing services for individuals, professionals and businesses. We also provide managed services for GST.